1099 Contractor Compliance Program

The recipient of an Independent Contractor’s services is responsible for providing evidence of an IC being properly classified, not the IC.

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Causes for Reclassification Enforcement

• Department of Homeland Security• Identify undocumented workers• Recent eVerify legislation enforces worker authorization• Applies to all Federal Contractors

• Department of Labor• New Administration is extremely ‘labor friendly’

• IRS• 2007 program rewards IC compliance whistleblowers• Announced 6,000 IC compliance audits

• IRS estimates it loses $300+B in tax revenue on unreported income

• U.S. House of Reps & U.S. Senate• Taxpayer Responsibility, & Consistency Act introduced in 2009

• President of the US• Proposed federal budget for 2011 includes $25M for “Misclassification Initiative”

• Expected to increase tax revenue by $7B over 10 years• $8B for the IRS to focus on “critical areas of non-compliance” enforcement over next 5

years

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Contractor Classification

IRS “20 Point Checklist” focuses on 3 Main Factors:

• Behavioral Control – how much control the employer has over the worker’s behavior and work results

• Financial Control – how much control the employer has over finances. Is there any risk of loss? It this project/customer their sole income?

• Relationship between the parties – How long is this relationship? Is there a completion date?

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IC Classification Process – Data Gathering

Documentation requirements

• 20 Factor Test with independent validation control• TAX ID Certificate• Articles of Incorporation (if applicable)• W-9• Responses to IRS 20 Questions (both the potential independent contractor and

the end-user)• Certificate of Insurance• Letter to Insurance Carrier (notification of change in policy)• Consulting Agreement• Statement of Work• Confidentiality Statement• Evidence of business operations such as stationery, business card, website

URL, etc.

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Estimated Amounts of Risk*

• Worker misclassification where the misclassification is not attributable to intentional

disregard of the tax rules. A 1099 is filed and documentation exists to support the IC

status.

• 11% of salary paid penalty plus interest*

• Worker misclassification where the misclassification is not attributable to intentional

disregard of the tax rules and there is support for the IC classification. A 1099 is not filed

due to reasonable cause.

• 12.5% of salary paid penalty plus interest*

• Worker misclassification where the misclassification is due to intentional disregard of the

tax rules, e.g. no classification procedure exists, the employer can be assessed penalties

for failure to withhold, employer & employee share of FICA, etc.

• 13%-66% of salary paid penalty plus interest*

• Approximately 90% of ICs interviewed / vetted from Adecco Customers under our IC

program were converted to W2 status.

*An internal analysis of our risk from Adecco’s Tax / Legal department. Provided as a benchmark to assess risk based on current procedure / process / practice.

Adecco USA - Proprietary and Confidential

Independent Contractor/1099 Compliance Program

IC Realignment

Adecco Solution Benefits

Expertise

Extensive defined vetting process

Financial Oversight

Change Management

Mitigation of Risk

Insurance & screening compliance

Supporting documentation

Proper Worker classification

Active rate negotiations

Spend visibility for all servicesStreamlined Process

Consolidated invoicing & reporting

Quality control

Administrative Support

Solution for non-qualified vendors

Adecco USA - Proprietary and Confidential

1099 Classification / Qualification Timeline

Week One - Classification

Week Two - Qualification

Documents are

reviewed & submitted to Tax and Risk

Day 2-3 Day 3-4

AP Vendor Set Up

Day 3-4

Client & WorkerConfirmation

Day 5Day 1-2

Worker SubmitsDocumentation

Tax Determination & Acceptance

Interview set

& Instructions sent

Day 1

Interview conduct with Worker & Manager

Day 2-4

Results sent to data team

Day 4 - 5

Determination

Delivered

Day 5

1099 Worker Identified